A recent Law 360 article titled “The Hottest FCA Cases and Trends to Watch in 2022” starts its round up of “the new FCA frontiers that lawsuits are beginning to explore” with a pronouncement that “[the number of] Pandemic Cases Modest Despite ‘Tough Talk.’”
Keep reading to get the latest on what our Atlanta whistleblower attorneys believe are the biggest factors holding back pandemic-related fraud claims.
Where’s the colossal crackdown on pandemic relief fraud?
The Law 360 article stated that there had been “widespread expectations of an FCA onslaught targeting misused dollars, but there haven’t yet been many clear signs of a colossal crackdown” other than “low hanging fruit” like executives who buy Ferraris with their PPP loan money.
The explanations offered by defense counsel quoted in the article largely – and unsurprisingly – focus on the available defenses for such cases. They note that the rules and regulations around COVID relief money changed rapidly and often; that companies who acted in good faith will not likely be subjected to prosecution; and that the “extraordinary circumstances” of the pandemic will make the Department of Justice more lenient and forgiving of errors.
The article gives barely a nod to the fact that it has only been two years since the pandemic began. That’s a miniscule amount of time in the world of FCA investigation, even though it feels like a lifetime to most of us. It also neglects the fact that new theories of fraud take longer to develop and prosecute than a garden variety upcoding case, for example.
I believe that time, not the forgiving nature of the Department of Justice, is the biggest factor in the seeming lack of public FCA enforcement actions around pandemic relief funds.
The CARES Act Turns Two, a Timeline
As we creep up on the second anniversary of the day the schools shut down, it is hard to remember that it has only been two years since that day.
At this point, time no longer has any meaning. There is Before and After the first quarantine. After is a bit of a blur, divided into such periods as “While Both Kids Did School at Home,” “After I Got My Home Office Set Up,” and “Before I Went to Florida for an In-Person Meeting.”
And while the pandemic relief funds came very quickly—I’ve been known to use words like “gushing” and “sprayed around the country” when describing the PPP program—it wasn’t instantaneous.
The CARES Act, which created the PPP program, was signed into law on March 27th, 2020. The first round of PPP funding was made available on April 3rd, 2020 and ran out a couple of weeks later on April 16th.
On April 21st and 24th, respectively, a second round of funding was approved in the Paycheck Protection Program and Health Care Enhancement Act (H.R. 266) and loans resumed. The program was set to expire at midnight on June 30th, but there were funds remaining.
So, just hours before the expiration, Congress authorized an extension through August 8th, 2020, at which point the first round of PPP lending ended.
Second PPP loans became available at the end of 2021, when the Consolidated Appropriations Act, signed into law on December 27th, 2020, provided another nearly three billion to the PPP program and authorized businesses to apply for a second loan.
It has barely been a year since that second round of funding.
The period in between the first and second PPP program, when everyone expected a second round but it had not yet been funded, was fertile ground for fraud.
During this time is when you most likely saw ads popping up on social media, noting that you “may be entitled to COVID relief funds” and urging you to apply for this “free money.”
Lately, there is rarely a week that we don’t get at least one call from someone who is sure that a neighbor, friend, colleague, or ex-spouse (that one is a favorite) fraudulently obtained a PPP loan. Some of them have sufficient evidence to bring it to the attention of the government; some we urge to report it on their own; some we have to tell that they lack sufficient information to make a report.
More rarely, we hear from someone who knows about a fraud ring—a group of people acting together to get loans for themselves and others, often keeping part of the resulting loan as a kickback. These cases are easier for two reasons. First, there is obvious fraud. Second, they cover more than just one single loan.
Bring Your Insider Knowledge to Bracker & Marcus
So, if you know someone who has gotten a fraudulent PPP loan, how do you know which category you fall into?
If you know of someone who has defrauded the government the first question I will ask is, “How do you know?”
Do you know it because you saw it? Or because the fraudster told you? Or because someone else told you what the fraudster has said? Were you there? Or did you come in later and see documentation? Or is this something that “everyone knows” where you work, but you can’t isolate it to any particular source?
Needless to say, the closer you are to the fraud, the better your case. The value of whistleblowers in many cases is that they bring insider knowledge of the fraud. They were there, they warned the person or company that what they were planning or doing was wrong, and then the fraudster did it anyway.
Why is this so helpful? For the same reason mentioned in that Law 360 article—a successful FCA case requires that we prove that the fraudster intended to commit fraud. This state-of-mind requirement, which lawyers call scienter, is one of the most valuable things a would-be relator can bring to the table. It’s one of the most difficult parts of the case to prove, and a relator who was in the room where it happened is invaluable.
If you know of someone who has defrauded the PPP loan program or any other federal or state program, give us a call. Our experienced FCA attorneys can help you evaluate next steps.